From Forbes.com
http://www.forbes.com/2002/04/26/0426topnews.html

I don't know if a login is required, so I included the story.

Considering the overall stink on Wall Street, the court should side with
Walter Hewlett.


-Craig


Walter Hewlett Makes His Case
Dan Ackman, 04.26.02, 9:03 AM ET

NEW YORK - Of all the differences between what is sometimes called
"corporate democracy" and a political democracy, the largest may be
this: In a political democracy, citizens stay in the country they are
born into and have a vested interest in improving it. In a corporation,
shareholders quite properly vote mostly with their feet. If they don't
like what management is doing, they just sell and put their money
elsewhere.

As a result, management rarely loses a vote of any kind, and merely
coming close to losing is an extremely rare event. This is why the
Hewlett-Packard (nyse: HWP - news - people ) trial underway in Delaware
Chancery Court is such a spectacle. There is one shareholder, Walter
Hewlett, who is committed by birth to the fight against HP's proposed
merger with Compaq Computer (nyse: CPQ - news - people ). Others who
might have opposed it quickly fled the jurisdiction, which is why the
already beaten down HP shares fell 19% when the deal was announced last
September.

Given how close Hewlett came to winning the vote despite the huge
structural forces against him, he probably deserves to win the lawsuit,
have the shareholder vote thrown out and the merger cancelled--at least
for now.

The court is now hearing an argument on what could be viewed as fine
points: Did CEO Carly Fiorina and HP's management somehow "bribe"
Deutsche Bank money managers into voting their clients' shares in favor
of the merger by threatening to disrupt the bank's lucrative investment
banking relationship with HP? The money managers were supposed to be
voting in favor of the interests of the shareholders but might have
voted instead in favor of the interests of their bank.

Only by virtue of Hewlett's long-term interest and his ability to
finance litigation does this arrangement--which creates at least an
appearance of impropriety--come to light. He makes his case just as the
U.S. Securities and Exchange Commission has said it is investigating
Deutsche Bank's vote. He argues just as all of Wall Street is under a
cloud of inquiry that its entire system of Chinese walls is broken.

Hewlett has also charged that management in effect tried to bribe all
shareholders by giving them false information that suggested the
proposed merger would create more wealth than it actually promised. This
sort or bribery is legal. Shareholders are supposed to vote their
self-interest and there is nothing wrong with appealing to it.

The question for the judge is whether HP's management really believed it
could deliver on its bribery or whether it promised benefits that it did
not believe--or had no reasonable basis for believing--would emerge.

Yesterday, Fiorina was called back to the stand to defend her remarks to
Deutsche Bank. She was forced to return because a tape recording of a
phone call between HP and Deutsche Bank executives became available just
the day before.

"We very much appreciate your willingness to listen to us this morning,"
Ms. Fiorina told the Deutsche money managers as she concluded the call,
according to the transcript read by Stephen Neal, Hewlett's attorney.
"This is obviously of great importance to us as a company. It is of
great importance to our ongoing relationship. We very much would like to
have your support here. We think this is a crucially important decision
for this company." This call came just before the March 19 shareholder
vote.

But it was also a crucially important decision for Fiorina--her career
and reputation were in the balance. It was crucial for HP's board, who
had voted for the merger and would have been embarrassed if the
shareholders rejected their decision. They are the most conflicted of
all, though it's a conflict that is not illegal and is routinely
allowed.

Board votes are rarely effectively challenged. Most hard-fought proxy
battles are waged by rival bidders, such as in a hostile takeover. In
those situations, both sides are self-interested and the contestants are
often labeled voracious predators who in no way represent the company's
long-term interest.

Here, it's different. Despite the backing of the HP board and HP
management, despite the fact that natural opponents sold their shares
before the vote, the deal, it appears, was approved by a roughly 2%
margin.

With new evidence coming out daily, Hewlett has raised a righteous
stink. Judge William Chandler III should, in light of what's been
revealed about Wall Street in general, give Hewlett the benefit of the
doubt. He should stop the merger for now and give Hewlett a second
chance to make his case.

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